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Profit Sharing and Reciprocity: Theory and Survey Evidence

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  • Thomas Cornelissen
  • John S. Heywood
  • Uwe Jirjahn

Abstract

The 1/n problem potentially limits the effectiveness of profit sharing in motivating workers. While the economic literature suggests that reciprocity can mitigate this problem, it remains silent on the optimal degree of reciprocity. We present a representative model demonstrating that reciprocity may increase productive effort but may also increase unproductive effort such as socializing on the job. The model implies that reciprocity increases profit up to a point but decreases profit beyond that point. Using detailed survey measures of worker reciprocity, we show that the probability of receiving profit sharing takes an inverse U-shape as reciprocity increases. This supports the general implication of the model and is shown to exist for both positive and negative reciprocity and to remain when a series of ability proxies and detailed industry indicators are included.

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Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 292.

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Length: 32 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp292

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Cited by:
  1. Tepe, Markus, 2010. "The effect of reciprocal motives, personality traits and wage differnences on public employee's job satisfaction," TranState Working Papers 131, University of Bremen, Collaborative Research Center 597: Transformations of the State.
  2. Uwe Jirjahn & Vanessa Lange, 2011. "Reciprocity and Workers' Tastes for Representation," SOEPpapers on Multidisciplinary Panel Data Research 402, DIW Berlin, The German Socio-Economic Panel (SOEP).
  3. Katrin Breuer & Patrick Kampkoetter, 2012. "Do Employees Reciprocate to Intra-Firm Trainings? An Analysis of Absenteeism and Turnover Rates," Cologne Graduate School Working Paper Series 03-09, Cologne Graduate School in Management, Economics and Social Sciences.

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